Supply Chain Climate Exposure

We propose an intuitive measure of supply chain climate risks, reflecting the fact that even a green company may have material climate exposure if its customers or suppliers face climate risks. Our measure captures price movements around climate news better than traditional climate data and shows performance patterns consistent with re-pricing of climate risks. The metric is more suitable for risk measurement than scope 3 emissions and requires raw data that is broadly accessible for large cross-sections of stocks and is of higher quality than currently available scope 3 data. We discuss applications for both portfolio and corporate decision-making.

Automated summary

We propose an intuitive measure of supply chain climate risks, taking into account the possibility of material climate exposure for a green company due to climate risks faced by its customers or suppliers. Our measure outperforms traditional climate data in capturing price movements related to climate news, and shows patterns consistent with the re-pricing of climate risks. The metric is more suitable for risk assessment than scope 3 emissions and relies on raw data that is widely accessible for stocks, with higher quality than currently available scope 3 data. We discuss applications for both portfolio and corporate decision-making.